Group 1 Automotive Inc., the publicly traded dealership group, today announced that it increased its dividend more than 18% to $0.13 a share. And what might be the driver of Group 1’s advancing financial status? Try F&I.
Interestingly, F&I accounted for just 3% of Group 1’s $1.74 billion of revenue last quarter, but 19% of its $244 million of net income. Total F&I revenue climbed 7.4% last quarter to $45.3 million compared to the same quarter in 2010. Only the company’s used wholesale sales revenue climbed at a greater rate during that period.
The advancing F&I performance can be best seen in Group 1’s gross F&I profit per retail unit, which hit $1,126 last quarter, up more than 18% since 2005, despite dips in the profit metric in the 2009 and 2010 recession years.
Prior to the recession, F&I turned into a substantial driver of earnings for dealerships nationwide. A look at Group 1 offers evidence that at least for some dealers that dynamic is returning to the retail automotive sector.
Volume solves most problems and profits solve all the problems. The good news is that we are back to historical facts. The F&I income at car dealerships has historically equaled the net income of the dealership. Now if we can just get car sales volume back to a more successful pace the economy can move forward. Here is where the auto finance industry simply needs to provide leadership; hopefully, it is leadership with an “innovative” twist even if it a new spin on a historical tactic. It will require something dramatic to overcome the lack of “Trust” and the lack of confidence in the economy; but, that is why the heads of those business units get paid the “big bucks”. I am anxious to see what they can do!
Mike, you are spot on with this one. It’s all about the data.
But the “killer app” you write of is out there. It is called the financial institution. The typical financial institution today has mountains of data that provide a unique window into the spending and fiscal behaviors of consumers.
This has led me to question whether “banking” is nothing more than “commerce”? Whether “banks” are nothing more than elements of retail?
I am of the opinion that financial institutions cannot view themselves as simply “enterprises of finance.” Rather, the better definition of a bank is “a repository of financial data.” Once lenders come to terms with that — and larger lenders have — they can begin to consider ways to leverage that data not just for their benefit, but for the benefit of their commercial clients, in auto financiers’ case, dealers. That’s where the explosion of value will come from for auto finance companies.
Let’s think of a particular scenario. Soon, near-field communication (NFC) will allow consumers to walk into a store and for that store to immediately know who that person is. That data will be tied to the consumer’s financial identity. With the NFC “ping,” when the consumer walks into a dealership, a whole different shopping and financing experience can take place. That consumer’s ID is now painted with the lender’s underwriting criteria, allowing the dealership to sell with more intelligence — and the consumer to get a better deal, both for the car and for the financing. Will the lender have to tie in to the entirety of the consumer’s banking life? I think so, and in this way, I think banks have an advantage, because generally speaking they “financially touch” consumers more than captives. (I suppose captives will be able to acquire this data to refine their offers, but as you pointed out, Mike, that data will come at a high price.)
What this all boils down to is auto finance by data. What opportunities the future holds!
I will add that this notion of banking by data is a central element of the agenda at AutoFinanceNews.net’s sister conference, Bank Innovation 2012, which will take place next month at the W San Francisco. We certainly encourage auto financiers looking to explore this exciting new chapter in financial services to join us at the conference.